Wells Fargo Courts Small-Business Owners

By

Robert Milburn

September 27, 2014

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By

Robert Milburn

September 27, 2014

Six years ago, Jay Welker, president of Wells Fargo Private Bank, began pushing toward the East Coast, where his operation had no offices. His idea was to find new private banking clients among customers at his parent company's 9,000 branches, spread out across the country. Especially attractive were small-business owners still building their firms.

After that it was just a waiting game, as accounts courted at $1 million to $5 million grow and help boost the bank's bottom line. "If you took a basket of these business owners, I couldn't tell you which ones will have a liquidity event and when. But over a period of time, I know a bunch of them will," Welker says.

The strategy has worked well. In fact, a high percentage of Welker's clients with $20 million or more began as $1 million accounts.

Accounts like that can add up quickly: The private bank has some $179 billion in assets under management. In addition, Wells Fargo, the parent company, serves the well-to-do through its brokerage business, and through its Abbot Downing unit, where clients with $50 million and above are served. All told, the parent has some $495 billion in accounts of $5 million or more, ranking No. 4 in Barron's latest listing of wealth management firms (see table below). That's up from $379 billion three years ago.

Clients of Wells' private bank pay a 1% annual fee on average; relationships of $100 million or more pay 0.25%. The typical account is $4.9 million. "We have massive market share in markets like Atlanta, Pennsylvania, and Northern Virginia, where $2.5 million goes a lot further than in New York City," Welker says.

Brad Boston, 60, is a Wells Fargo private-bank client. A former Cisco Systems executive, last year he became the CEO of NetNumber, a Lowell, Mass., start-up that builds network infrastructure for telecoms.

Boston owns a substantial amount of the firm's equity, and he moved east from California to assume his new NetNumber role. So the private bank's real estate unit fast-tracked his move by converting his California home to a rental property, securing him a line of credit to buy a downtown Boston condo, and even delivering the paperwork to his home before a business trip.

Boston said the bank is helping him with his NetNumber stock position by showing him how to navigate complex stock-options and capital-gains rules. One possibility: selling his California home to clearly establish residence in Massachusetts, where the combined tax rate on a capital gains payout is 28.1%, versus California's 33%.

The private bank has its own mergers-and-acquisitions unit to sell clients' businesses, most with $10 million to $100 million in annual sales. Such services recently enticed an oil-industry crane maker from Texas and a Pennsylvania maker of industrial valves to become clients. "Most of them don't make the front page of The Wall Street Journal, but they do make a lot of money," says Dave Coffaro, the private bank's chief fiduciary officer.

Then the bank adds on personal touches. One client's 89-year-old mother in Florida developed dementia. After her checks began to bounce, the son discovered she was paying the gardener three times a month, overpaying for groceries, and forgetting to pay utility bills. So the private bank recommended that he sign her up for its life-management service, which helps the well-to-do elderly pay bills, select health care, and find appropriate living arrangements.

Then there is the time a client discussed his daughter, a partner in his retail operation who was getting married to a young man the client genuinely liked. But the banker asked, "How do you feel about him becoming a partner in the business?" The son-in-law would in effect own a sixth of the business after the wedding, a notion that "made Dad very uncomfortable," says Coffaro. A much-needed conversation about succession planning ensued.

For many clients, getting help with managing these messy family issues is often just as important as receiving the right investment advice. On that front, the bank gave us performance data on its "balanced portfolio," on the condition that we couldn't publish precise returns for competitive reasons. The recommended allocations are: 41% stocks, 33% bonds, 11% hard assets, 12% hedge funds and private equity, and 3% cash. For the most part, the portfolio strategies we saw outperformed their benchmarks.

In fact, the investment results reminded us of many small businesses across the U.S.—not headline-generating but very solid performers.

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